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Shaky Agreements Over Fixing the Corporate Tax System

Republicans and Democrats in Washington rarely agree on anything these days. But in recent months almost everyone seems to have coalesced around the notion that the corporate tax system is broken and needs to be fixed.

President Obama is for it. So are the two leaders of the tax-writing committees in Congress: the House Ways and Means chairman, Dave Camp, a Republican, and Max Baucus, the Democratic chairman of the Senate Finance Committee, who plans to retire next year and may be seeking a capstone for his career. The country’s biggest companies have declared loudly that they are in favor of revising the nation’s business tax system, too.

Despite the widespread support, the campaign for an overhaul is exposing deep fault lines within the business world that suggest it may fall apart. The problem is how to pay for everything lawmakers and businesses want without adding to the deficit.

The main goal of the advocates on both sides of the aisle is to lower the official corporate top rate from 35 percent, the highest among industrialized nations. Republican leaders and a large number of giant companies also want to end what they regard as the noxious practice of taxing the profits that multinational corporations earn abroad. The United States is one of the few countries to do so.

The only way to tackle such goals without losing revenue, however, is to close specific corporate tax preferences intended to promote various activities considered worthwhile by their supporters. There is plenty of money to be found: a Government Accountability Office study in March estimated the 80 or so business tax exemptions added up to about $181 billion in 2011, roughly the same size as total corporate tax revenue.

Yet each of these corporate tax breaks is worth a fortune to the industries they benefit — and fierce campaigning is under way, employing teams of lobbyists in Washington, to keep them in place.

“It is going to be practically impossible to get the rate down,” said Howard Gleckman, a fellow at the nonpartisan Tax Policy Center. “No one wants to cut their preferences.”

Since the last reduction in United States corporate tax rates, in 1986, other nations have reduced their own business rates; corporations complain this is putting them at a sharp competitive disadvantage. In reality, though, few companies pay the official rate.

Many pay at a much lower effective rate, taking advantage of numerous tax breaks and loopholes and using aggressive tax strategies to shift profits to more generous tax territories abroad. Among the companies benefiting from lower effective rates is General Electric, which has paid total corporate taxes — federal, state, local and foreign — equal to 17.9 percent of its cumulative $81 billion in earnings over the last five years, according to an analysis by SP Capital IQ.

FedEx paid 20.1 percent, Amazon.com 6.6 percent and Ford Motor 4.2 percent. G.E. said its tax rate was unusually low over this period because it had big losses during the financial crisis. FedEx said it took advantage of temporary incentives to make new investments.

Congress, under relentless pressure from business interests, has allowed corporate taxes to dwindle as a source of revenue. In 2012, they amounted to about 1.6 percent of gross domestic product, half the level collected in 1970. By comparison, the individual income tax generated 7.3 percent of G.D.P. last year.

Many industrialized countries collect more than that percentage, although they, too, have to contend with a competitive globalized world where multinational companies can shift profits beyond the reach of local tax authorities.

“Income is increasingly difficult to nail down,” said Aswath Damodaran, a finance professor at New York University. “It is like nailing jelly to the wall. And the problem is only going to get worse rather than better.”

The two biggest corporate tax breaks are for accelerated depreciation of machinery and equipment, which saved corporations an estimated $76 billion in 2011, and deferral of foreign source income.

Deferral allows big multinational corporations to postpone paying United States taxes on foreign earnings until they bring those profits home. It saved them $41 billion in 2011. American corporations had amassed about $1.7 trillion in offshore profits by last year, analysts at JPMorgan Chase estimated, a figure that is now believed to be almost $2 trillion.

Mr. Obama wants to claw some of this back by imposing a minimum tax on foreign earnings.

Article source: http://www.nytimes.com/2013/05/03/business/shaky-agreements-over-fixing-the-corporate-tax-system.html?partner=rss&emc=rss

Memo From Berlin: Germans’ Deep Suspicions of Nuclear Power Reach a Political Tipping Point

No matter that the incipient nuclear catastrophe was about 5,500 miles away, or that Germany, unlike Japan, did not lie on known tectonic fault lines. On the streets of major cities, hundreds of thousands of protesters, casting events in Japan as a portent of what might happen here, turned out ahead of state elections to demand a halt to Germany’s own nuclear power program, the source of nearly a quarter of the nation’s electricity.

Those two intertwined phenomena — angst and electoral maneuvering — led to what seemed one of the most abrupt reversals of Angela Merkel’s years as German chancellor: On Monday, she abandoned plans laid only nine months earlier to extend the life of the country’s nuclear power stations and ordered instead that they be phased out by 2022.

The decision meant that, at Europe’s heart, the Continent’s economic powerhouse had committed itself far more radically than its neighbors to the east or west to replace nuclear power with renewable sources of energy like wind turbines — or at least, critics said, with nuclear-generated power imported from neighbors like France.

But the German move also raised a question whose answer seemed elusive: What is there in this land of 82 million people that has, over decades, bred an aversion to nuclear energy that seems unrivaled among its economic peers, defying its reputation for reasoned debate?

“Just as creationists attempt to ban the theory of evolution from the school books,” said a physicist, Peter Heller, in a Web posting that challenged the national nuclear orthodoxy, “it almost seems as if every factual and neutral explanation in Germany is now in the process of being deleted” from the nuclear debate.

Indeed, said Reinhard Wolf, a professor in Frankfurt, the debate is so passionate that “you are either with us or against us.”

“There is no middle ground,” Professor Wolf said.

The power of antinuclear sentiment has already redrawn the politics of survival for Mrs. Merkel. Recent regional elections in the southern state of Baden-Württemberg and in the northern city-state of Bremen have undermined her conservative Christian Democratic Union to the benefit of the antinuclear Green Party. The Greens’ showing was so strong it seemed that if national elections were held now, they would emerge again as kingmakers, as they were before Mrs. Merkel came to power in 2005.

Within days of that fundamental shift, her energy policy, once firmly based on extending the life of Germany’s nuclear plants, swung around in favor of closing the plants much sooner. As she said after the Fukushima crisis began, events in Japan changed “everything in Germany.”

When Mrs. Merkel on Monday announced her plans to phase out all of Germany’s 17 nuclear reactors, said Gerd Gigerenzer, director of the Max Planck Institute for Human Development here, she courted the danger “that when a government reacts too quickly to an incident like Fukishima, it creates the impression that there is no real reason except winning votes.”

“The government has decided to listen to the anxiety of the people and go to the position where the opposition wants them to go,” Mr. Gigerenzer said in a telephone interview.

Some call the process Merkelism, defined by the columnist Roland Nelles in the weekly Der Spiegel as politics “based on two principles.”

“The first is that, if the people want it, it must be right,” Mr. Nelles wrote. “The second is that whatever is useful to the people must also be useful to the chancellor.”

That calculation seemed borne out by opinion surveys suggesting that around 70 percent of Germans believed that their chancellor was maneuvering for electoral advantage. The same proportion, significantly, said they were prepared to pay higher electricity bills in return for ending nuclear energy.

That again seemed to underscore the way the nuclear debate here draws such apocalyptic comparisons.

“What Sept. 11, 2001, meant for the vulnerability of the West,” the center-left Süddeutsche Zeitung said, for instance, the catastrophe in Japan on March 11, 2011, “will mean for the idea that nuclear power is controllable. That idea can no longer be supported.”

Of course, few modern German reflexes are completely free of what Professor Wolf in Frankfurt called “the German experience” of its Nazi past, which has made many suspicious of the industrialization of destructive forces, whether chemical or nuclear.

Article source: http://feeds.nytimes.com/click.phdo?i=8f91c3475c82c45b1b7dfcd7ccb1b536

Shaky Agreements Over Fixing the Corporate Tax System

Memo From Berlin: Germans’ Deep Suspicions of Nuclear Power Reach a Political Tipping Point

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